House prices fall, but first time buyer mortgages struggle

House prices dipped in June as rising mortgage rates made it increasingly difficult for cash-strapped first-time buyers to secure home loans, according to new figures published today.

Asking prices dropped by 0.4 per cent in June after four consecutive monthly rises, figures from Rightmove, the property website show.

The asking price for the average home dropped by more than £1,000 to £226,436. However asking prices are still 6 per cent higher than the beginning of the year.

A shortage of property for sale has supported prices in recent months, but Rightmove says that, as mortgage lenders increase their rates and continue to demand large deposits from first-time buyers, sellers are being forced to price their homes more competitively to attract interest.

Many leading lenders have increased the rates on their fixed-rate deals in recent weeks, despite no change in the corporate Bank of England base rate, which remains at a record low of 0.5 per cent.

New buyers who have not savings for a deposit of at least 20 per cent are also prevented from taking out the most competitive deals.

There are fears that the increase in the cost of home loans could undermine the tentative signs of stabilisation in the plunging housing market. Figures from Halifax business bank showed that house prices rose by 2.6 per cent in May, the biggest rise in one month for six years.

House prices have already fallen by 22 per cent since the market peaked in the autumn of 2007. Miles Shipside, the commercial director at Rightmove, said: “Interest rates for fixed-rate first time buyer mortgages are now increasing, in line with money-market expectations of higher medium-term interest rates.

“Property deals appear within the grasp of cash-strapped first-time buyers, but every rise in fixed rates frustratingly nudges them a bit further out of reach of the investments.”

“Lenders need to be wary not to choke off the recovery in affordability and activity by punishing the returning buyers with ever widening margins.”

Home sellers in East Anglia have been the worst affected. Those putting their homes on the market have been forced to cut the price by an average of 6.6 per cent, despite a chronic shortage of homes for sale, local estate agents say.

London sellers have cut their asking prices by only 0.1 per cent during the month, while pockets of demand across the North West and East Midlands have allowed sellers in these regions to raise their asking prices by 4.5 per cent and 4 per cent respectively. Sale prices in Wales have also risen by 1.1 per cent during June.

Demand for detached properties has remained the strongest, despite the housing slump. Sellers have cut their asking prices by 5 per cent, or about £17,000, over the past year, while owners of terraced houses have been forced to cut their prices by 7.4 per cent, Rightmove said.

The asking prices for apartments have fallen by 6.5 per cent over the past 12 months, while owners of semi-detached houses have cut their prices by 6.9 per cent.

Behind the story: Buying a little bit of Mayfair

Unable to scrape together the £20 million asking price for the six-storey Victorian house in Mayfair that is Britain’s most expensive repossession? Do not despair (Anne Ashworth writes). A place in this exclusive quarter could be yours for much less — a mere £110,000, in fact.

The address is impeccable: Hill Street, equidistant between Berkeley Square and South Audley Street. Sadly, it is only a parking place, albeit a secure, underground one. With a 150-year lease.

Shaun Crockett, of Wetherell, the estate agent handling the sale, expects lots of interest, as Mayfair residents may not be short of money but are often without a place to put the car. “Mayfair’s Georgian townhouses weren’t built with garages,” Mr Crockett said, “unless you also own the adjoining mews house.” Parking in Mayfair costs about £40 a day, or £14,600 a year, which almost puts the outlay into context. The long lease makes this a “very rare” opportunity. Mr Crockett says that landlords do not like such set-ups as it constrains their ability to redevelop a building.